China's Ministry of Commerce announced on Friday a ban on exporting dual-use items to an additional 14 European Union entities, with immediate effect, stating that the move is in response to the latest EU sanctions on Russia.

The European Union adopted its 21st package of sanctions against Russia on Thursday over its war in Ukraine, and the Ministry said that 14 Chinese companies from the mainland and Hong Kong had been placed under sanctions. In a statement, the Ministry explained that the European entities banned by China from receiving dual-use items include German automotive and arms manufacturer Rheinmetall and Polish electronics company Vigo Photonics.

Reports said that foreign organizations and individuals are prohibited from transferring or supplying dual-use items manufactured in China to the entities concerned, while Chinese exporters are allowed to apply for permission in exceptional cases. Dual-use items are defined as goods, software, or technologies with both civilian and military uses, including certain rare earth elements essential for manufacturing drones and electronic chips. Beijing's export control list has mostly targeted US and Japanese entities. In April, it placed 7 European entities on the list due to arms sales to Taiwan, a rare case of sanctions targeting Europe related to the Taiwan issue. The European Union announced in a statement on Thursday the addition of 51 new entities—including some based in China—to its list of entities subject to tighter export restrictions on dual-use goods and technologies, due to their support for the Russian military-industrial complex.

• Foreign trusts

Separately, China's Ministry of Finance and the State Taxation Administration announced that, effective Friday, they will impose individual income tax on assets deposited in foreign trusts and on the income generated from them, closing a legal loophole long exploited by the wealthy to hide their wealth abroad.

These foreign trusts have long been a gray area in the application of China's tax law, and this move is Beijing's latest effort to collect revenue from the overseas wealth of its citizens.

The Ministry of Finance and the State Taxation Administration stated in a joint statement that the new rules impose a 20% tax on the increase in value of shares, real estate, or other assets when transferred to foreign trusts.

The authorities added that income generated from these trusts and the foreign entities they control will be subject to an annual tax of 20%, without providing any estimates of the amount of funds deposited abroad.

The rules include comprehensive anti-tax avoidance provisions. The authorities added that individuals who acquire foreign nationality or permanent residence abroad, while maintaining their main economic interests in China, may be treated as Chinese tax residents.

Unpaid taxes on assets deposited in trusts since January 2023, and on trust income received before 2026, must be settled within 90 days to avoid late penalties.

The authorities explained that large unpaid amounts may face a longer collection period, while tax evasion may result in back taxes, surcharges, and fines.

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